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Misrepresentation that Dwelling Was “Owner-Occupied” Justified Rescission of the Fire Insurance Policy

The Second Department determined the representation in a fire insurance policy that the dwelling was “owner-occupied” was a material misrepresentation which allowed rescission of the policy. Even if the property owner was unaware of the misrepresentation at the outset, he ratified the contract by permitting it to be renewed:

“[T]o establish its right to rescind an insurance policy, an insurer must demonstrate that the insured made a material misrepresentation” … . “A representation is a statement as to past or present fact, made to the insurer by, or by the authority of, the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof” (Insurance Law § 3105[a]). “A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented” (…Insurance Law § 3105[b]). “To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show that it would not have issued the same policy if the correct information had been disclosed in the application” … .

Here, the defendant demonstrated, prima facie, that the application for insurance contained a misrepresentation regarding whether the premises would be owner-occupied and that this misrepresentation was material … . Contrary to the plaintiff’s contention, the defendant established that the material misrepresentation is attributable to him since, even if the application for insurance had been submitted without his actual or apparent authority, he ratified the representations contained in the application by accepting the policy for owner-occupied premises and permitting it to be renewed for years thereafter on the same terms … . Morales v Castlepoint Ins Co, 2015 NY Slip Op 01618, 2nd Dept 2-25-15

 

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“Ensuing Loss” Exception to Coverage Exclusion for Water Damage Did Not Apply to Water Damage Stemming from an “Explosion” of a Water Main Outside Plaintiffs’ Home—The “Ensuing Loss” Exception in the Policy Referred Only to Water Damage which Stemmed from a Covered Peril (Like a Fire)

The Court of Appeals, in a full-fledged opinion by Judge Read, with a concurring opinion, determined the water-damage exclusion in the homeowner’s policy precluded recovery for water entering plaintiffs’ basement when a water main burst outside the home.  Plaintiffs argued that an exception in the policy for water damage resulting from an “explosion” allowed recovery.  The Court of Appeals held that the “explosion” exception was part of an “ensuing loss” exception referring to water damage which necessarily followed a covered event, like an explosion or fire, and did not cover water damage stemming from an “explosion” of a water main outside the home:

First, “[i]n determining a dispute over insurance coverage, we first look to the language of the policy” … . Concomitantly, we “construe the policy in a way that affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect” … .

Second, although the insurer has the burden of proving the applicability of an exclusion …, it is the insured’s burden to establish the existence of coverage … . Thus, “[where] the existence of coverage depends entirely on the applicability of [an] [*5]exception to the exclusion, the insured has the duty of demonstrating that it has been satisfied” … .

And finally, “[w]here a property insurance policy contains an exclusion with an exception for ensuing loss, courts have sought to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk” …

In this case, plaintiffs’ loss occurred when water from a burst water main flowed onto their property, flooding the basement of their home. Accordingly, their loss clearly falls within item 4 of the water loss exclusion, which bars coverage for “loss to the property . . . consisting of or caused by . . . 4. Water . . . on or below the surface of the ground, regardless of its source . . .[, including] water . . . which exerts pressure on, or flows, seeps or leaks through any part of the residence premises” … .

Turning … to the sudden and accidental exception, this clause is properly characterized as an ensuing loss provision, which “provide[s] coverage when, as a result of an excluded peril, a covered peril arises and causes damage” … . Platek v Town of Hamburg, 2015 NY Slip Op 01483, CtApp 2-19-15

 

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Lease Provision Allowing the Landlord to Recover Attorney’s Fees in an Action Against the Tenant Triggered the Tenant’s Reciprocal Right to Recover Attorney’s Fees Against the Landlord Pursuant to Real Property Law 234 Should Tenant Prevail in the Action

The Court of Appeals, in a full-fledged opinion by Judge Rivera,  determined that a provision in a lease which allowed the landlord to recover attorney’s fees in a successful action against the tenant for failure to cure a default triggered the tenant’s right to attorney’s fees under Real Property Law 234 should the tenant prevail in the action:

Under Real Property Law § 234,

“Whenever a lease of residential property shall provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of the failure of the tenant to perform any covenant or agreement contained in such lease, or that amounts paid by the landlord therefor shall be paid by the tenant as additional rent, there shall be implied in such lease a covenant by the landlord to pay to the tenant the reasonable attorneys’ fees and/or expenses incurred by the tenant as a result of the failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action or summary proceeding commenced by the landlord against the tenant arising out of the lease.”

In order for the tenant to be eligible for attorneys’ fees under this section, the parties’ lease must permit the landlord, in any action or summary proceeding, to recover attorneys’ fees as a result of the tenant’s breach. Where a lease so provides, the court must interpret the lease to similarly permit the tenant to seek fees incurred as a result of the landlord’s breach or the tenant’s successful defense of a proceeding by the landlord. Here, we hold that paragraph 15 provides the basis for the tenant’s claim for reciprocal rights to attorneys’ fees within the meaning of Real Property Law § 234.

Paragraph 15 of the lease, titled “Tenant’s default”, sets forth the landlord’s remedies and the tenant’s liabilities upon the tenant’s failure to comply with a term or rule in the lease. According to this paragraph, where a properly notified tenant fails to cure a default the landlord may cancel the lease and retake possession of the premises, if necessary, by way of an eviction proceeding or other lawsuit. Upon cancellation of the lease and the landlord’s repossession of the premises the tenant is liable for rent for the unexpired term. The landlord’s rights to attorneys’ fees are set forth in clause D. (3) of this paragraph, which states, in part,

“D. If this Lease is cancelled, or Landlord takes back the Apartment, the following takes place:. . . .

“(3) Any rent received by Landlord for the re-renting shall be used first to pay Landlord’s expenses and second to pay any amounts Tenant owes under this Lease. Landlord’s expenses include the costs of getting possession and re-renting the Apartment, including, but not only reasonable legal fees, brokers fees, cleaning and repairing costs, decorating costs and advertising costs.”

Thus, clause D. (3) anticipates that after a tenant’s default leads to the reletting of the premises, the landlord is entitled to collect attorneys’ fees incurred in gaining possession. Under these circumstances, clause D. (3) complies with the requirements of Real Property Law § 234 that the lease provide “in any action or summary proceeding” for the landlord’s recovery of attorneys’ fees “incurred as the result of the failure of the tenant to perform any covenant or agreement contained in such lease.” Graham Ct Owner’s Corp v Taylor, 2015 NY Slip Op 01482, CtApp 2-19-15

Criteria for Recovery of Lost Profits for Breach of Contract Described

In finding the criteria were not met, the Second Department explained the proof necessary to recover lost profits in a breach of contract action:

“Lost profits may be recoverable for breach of a contract if it is demonstrated with certainty that such damages have been caused by the breach, and the alleged loss is capable of proof with reasonable certainty. There also must be a showing that the particular damages were fairly within the contemplation of the parties to the contract at the time the contract was made” … . While a plaintiff need not prove that its damages resulted “solely from [the defendant’s] breach of contract, to the exclusion of all other factors,” it must, at least, prove that the breach “contributed in substantial measure to its damages” … . Todd Rotwein DPM PC v Nader Enters LLC, 2015 NY Slip Op 01441, 2nd Dept 2-18-15

 

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Criteria for Vacation of a Stipulation of Settlement Not Met

In finding that the motion to vacate a stipulated settlement was properly denied, the Second Department explained the relevant analytical criteria:

“Settlements entered into in open court are binding and are not lightly cast aside” … . A stipulation is an independent contract which is subject to basic principles of contract law … . “Only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident, will a party be relieved from the consequences of a stipulation made during litigation” … . Mortgage Elec Registration Sys Inc v Kontarinis, 2015 NY Slip Op 01430, 2nd Dept 2-18-15

 

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Plaintiff Breached Contract By Not Being Ready on the Time-of-the-Essence Date and Was Therefore Not Entitled to a Return of the Downpayment/Plaintiff’s “Tortious-Interference-with-Contract” Cause of Action Against Brokers Dismissed Because Sellers Did Not Breach the Contract

In finding plaintiff was not entitled to return of her downpayment because she was not ready to close on the “time-of-the-essence” date, the Second Department explained the relevant analytical criteria, as well as the elements of a tortious interference with contract cause of action:

The sellers established, prima facie, that they were ready, willing, and able to perform on the time-of-the-essence closing date, and that the plaintiff lacked a lawful excuse for her failure to close … . In opposition, the plaintiff failed to raise a triable issue of fact … . Accordingly, the sellers established that they did not breach the contract and that the plaintiff was not entitled to the return of her down payment … . …

The plaintiff alleged that the brokers tortiously interfered with the contract between the plaintiff and the sellers. The elements of a cause of action for tortious interference with contract are (1) a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional procurement of the third party’s breach of that contract; and (4) damages … . Here, the brokers established their prima facie entitlement to judgment as a matter of law by submitting evidence demonstrating that the third-party, i.e., the sellers, did not breach the contract; rather, the plaintiff breached the contract when she did not appear on the time-of-the-essence closing date. In opposition, the plaintiff failed to raise a triable issue of fact. Iacono v Pilavas, 2015 NY Slip Op 01418, 2nd Dept 2-18-15

 

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Landlord Not Entitled to Reformation of a Lease—Landlord Had Failed to Use Due Diligence Before Signing and Did Not Notice a Deletion Made by Plaintiff—Plaintiff Was Not Obligated to Highlight the Deletion

The First Department determined defendant landlord, sophisticated in business matters, was not entitled to reformation of a lease. The landlord had signed the agreement after the provision capping what the landlord would pay for renovations made by the tenant was deleted.  The renovations ended up costing nearly a year’s rental income. Plaintiff’s failure to “highlight” the deletion did not constitute fraud:

Defendant landlord failed to demonstrate that it was entitled to reformation of the lease amendment providing that it would reimburse plaintiff tenant the total cost of its alterations, rather than a capped amount as had been set forth in drafts circulated during negotiations over the renewal lease. Defendant’s failure to read the final document before signing it precludes its claim of unilateral mistake induced by fraud based on plaintiff’s failure to highlight its deletion of the portion of the provision capping the reimbursement amount, before presenting it to defendant’s in-house counsel for defendant’s signature … . Contrary to this sophisticated defendant’s contention, the justifiability of its reliance does not present an issue of fact barring summary disposition … . Even assuming an obligation to conduct pre-contractual negotiations in good faith in appropriate circumstances, such as would enable a party to rely on the adverse party negotiating in good faith and to assume that there are no new changes to earlier drafts unless the change is highlighted, defendant’s claim for reformation based on the allegation of fraud cannot stand. Defendant simply may not justifiably rely on the absence of such highlighting for its failure to fully review the final version of this four-page document before signing it, especially since the change is on the first page. US Legal Support Inc v Eldad Prime LLC, 2015 NY Slip Op 01386, 1st Dept 2-17-15

 

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Contract with Construction Manager Did Not Give the Manager Sufficient Supervisory Control to Impose Liability Under Labor Law 200, 240 (1) or 246 (1)

The First Department determined the terms of the contract with the construction manager did not afford the manager sufficient control to impose liability under Labor Law 200.  The court further determined the contract did not make the manager an agent for the property owner, such that the manager would be vicariously liable under Labor Law 240 (1) or 246 (1). Plaintiff fell when an elevated plank on which he was standing shifted:

… [T]he CMS (construction management services contra t) specified that [t]he [construction manager] will not supervise, direct, control or have authority over or be responsible for each contractor’s means, methods, techniques, sequences or procedures of construction or the safety precautions and programs incident thereto. If it became apparent that the means and methods of construction proposed by the construction contractors would constitute or create a hazard, then the construction manager was required to notify the Commissioner, or . . . his/her duly authorized representative.”

Where a claim under Labor Law § 200 is based on alleged defects or dangers arising from a subcontractor’s methods or materials, liability cannot be imposed on an owner or general contractor unless it is shown that it exercised some supervisory control over the work … . Defendants established that under the CMS they were not obligated to exercise supervisory control over the construction contractor’s means or methods of work, nor did they assume such responsibility … . Although under the CMS the construction manager had some general duties to monitor safety at the work-site, and defendants’ personnel were on site on a daily basis, these general supervisory duties are insufficient to form a basis for the imposition of liability … .

Defendants also established that they were not the property owner’s statutory agent for purposes of Labor Law §§ 240(1) or 241(6) such that they should be held vicariously liable for plaintiff’s injuries …. The CMS did not confer upon the construction manager the right to exercise supervisory control over the individual contractors, nor were defendants authorized to stop the work if their personnel observed an unsafe practice … . The construction manager was only obligated to notify the project owner or its duly authorized representative of such a situation. DaSilva v Haks Engrs, 2015 NY Slip Op 01380, 1st Dept 2-17-15

 

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Telephone-Communication Buy-Sell Arrangements Sufficient for Long-Arm Jurisdiction/Forum Selection Clause In Invoices Not Enforceable Pursuant to UCC 207

The First Department determined that telephone communications re: the sale of diamonds between a seller in New York and a buyer in California were a sufficient basis for New York's long-arm jurisdiction over the California defendant.  The court further found that the forum selection clause and consent to jurisdiction in the relevant invoices were additional terms which, pursuant to UCC 207, were never expressly agreed to and therefore not enforceable:

UCC § 2-207 contemplates situations like the one here, where parties do business through an exchange of forms such as purchase orders and invoices. As the parties did here, merchants frequently include terms in their forms that were not discussed with the other side. UCC § 2-207[2] addresses that scenario, providing, “[t]he additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: … [b] they materially alter it.”

Here, during telephone discussions, the parties negotiated the essential terms required for contract formation, and the invoices were merely confirmatory … . Thus, the forum selection clause is an additional term that materially altered the parties' oral contracts, and defendant did not give its consent to that additional term … . …

… [T]he motion court erred in finding that the parties' telephone dealings over several years and in the two transactions at issue were insufficient as a matter of law to confer personal jurisdiction over defendant pursuant to CPLR 302(a)(1). CPLR 302(a)(1) authorizes the assertion of long-arm jurisdiction over a non-domiciliary who “transacts any business within the state or contracts anywhere to supply goods or services in the state.” CPLR 302(a)(1) is a “single act statute”; accordingly, physical presence is not required and one New York transaction is sufficient for personal jurisdiction. The statute applies where the defendant's New York activities were purposeful and substantially related to the claim … . ” Purposeful'” activities are defined as ” those with which a defendant, through volitional acts, avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws'” … .

We recognize that courts of this state have generally held telephone communications to be insufficient for finding purposeful activity conferring personal jurisdiction … . However, there are exceptions to this general rule, and in some cases, telephone communications will, in fact, be sufficient to confer jurisdiction … . C Mahendra NY LLC v National Gold & Diamond Ctr Inc, 2015 NY Slip Op 01157, 1st Dept 2-10-15

 

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Criteria for Determining the Clarity or Ambiguity of the Terms of a Contract Explained

In affirming the verdict after a bench trial (finding the relevant terms of a contract unambiguous), the Second Department explained its review powers and outlined the analytical criteria re: the determination of the clarity or ambiguity of the terms of a contract:

“In reviewing a determination rendered after a nonjury trial, the power of this Court is as broad as that of the trial court, and this Court may render the judgment it finds warranted by the facts, taking into account that in a close case the trial court had the advantage of seeing the witnesses and hearing the testimony” … . “The construction and interpretation of an unambiguous written contract is an issue of law within the province of the court, as is the inquiry of whether the writing is ambiguous in the first instance. If the language is free from ambiguity, its meaning may be determined as a matter of law on the basis of the writing alone without resort to extrinsic evidence” … . “When interpreting a contract, the construction arrived at should give fair meaning to all of the language employed by the parties, to reach a practical interpretation of the parties' expressions so that their reasonable expectations will be realized” … . “The terms of a contract are clear and unambiguous when the language used has a definite and precise meaning, unattended by danger of misconception in the purport of the agreement itself, and concerning which there is no reasonable basis for a difference of opinion” … . Palumbo Group v Poughkeepsie City Sch Dist, 2015 NY Slip Op 00857, 2nd Dept 2-4-15


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